UK unemployment has surged to its highest level since 2021, as fresh tax rises introduced by Chancellor Rachel Reeves coincide with a broader downturn in the labour market, according to official data.
The Office for National Statistics (ONS) reported that the jobless rate climbed to 4.6% in the three months to April, up from 4.5% in the previous quarter.
This marks the highest unemployment level since the summer of 2021, dealing a political setback to the Chancellor just ahead of the upcoming Spending Review.
Wage growth also lost momentum, with regular pay rising 5.2% annually, slightly under economists’ forecasts of 5.3%.
Though historically strong, the pace of pay increases is now slowing in both real and cash terms.
Liz McKeown, Director of Economic Statistics at the ONS, said:
“There continues to be weakening in the labour market, with the number of people on payrolls falling significantly. Feedback from employers suggests some firms are holding back on hiring or not replacing departing staff.”
The number of people on UK company payrolls dropped by 109,000 in May, the steepest monthly decline since the height of the Covid-19 pandemic, while job vacancies fell by 63,000 over the same three-month period.
The latest labour figures reflect the initial impact of April’s £25bn rise in employer National Insurance contributions, which affected nearly one million businesses. The introduction of a 6.7% increase in the national living wage has further intensified cost pressures.
Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales, said:
“These figures suggest that the UK labour market suffered a damaging blow in ‘Awful April’, with soaring NICs and wage costs leading more employers to cut jobs. Painfully high business costs could drive further job losses later this year—especially if the Autumn Budget brings fresh tax hikes.”
Industries such as hospitality, retail, and leisure, where wage bills make up a large portion of costs, are especially vulnerable.
The Bank of England is closely monitoring the employment landscape as it weighs whether to hold or reduce interest rates.
After four rate cuts bringing borrowing costs to 4.25%, policymakers are expected to keep rates unchanged next week amid global economic uncertainty, including risks stemming from Donald Trump’s renewed trade tensions.
Employment Minister Alison McGovern commented: “We are putting new measures in place to support jobseekers. Getting more people into work and boosting take-home pay is central to our plan for change.”
